How much are you willing to pay to turn the HSBC tower into a vital offshoot of Buffalo’s waterfront development and keep it from becoming a vacant beacon of Buffalo’s blight?

That’s the question that’s going to dominate the discussion through the end of next year as the owners of the soon-to-be-empty tower – the tallest privately owned office building in upstate New York – scramble to avoid foreclosure or bankruptcy.

To their credit, the tower’s owners, Seneca One Realty, are making a gallant effort to come up with a way to hang on to the 38-story tower and make it a vital part of downtown Buffalo and the new waterfront developments nearby.

They want to convert the tower into a mix of hotel rooms, condominiums and apartments and offices, while replacing the concrete pad surrounding the fortress-like building with green space that would turn the undeveloped portion of the property into an inviting gathering spot for the community.

There’s only one problem: None of the ideas come close to making financial sense. Not by a long shot.

To make it work, the building’s owners would need incentives that would cost taxpayers tens of millions of dollars through a combination of tax credits, property tax breaks and other handouts, including possibly a slice of the Buffalo Billion in promised state aid.

That’s asking a lot. And it’s even harder to swallow for a retrofit of a 40-year-old office building that lost its second-biggest tenant, the Phillips Lytle law firm, to a new office building a block away and its biggest tenant, HSBC, to a cost-cutting move that will see it shift most of its tower workers to other local facilities.

But the alternative is letting the market take its course, and that isn’t likely to be pretty: A 95-percent empty building that serves as a symbol for Buffalo’s economic struggles, on the outskirts of a promising waterfront development touted as a hopeful sign of the region’s future.

“This property sits in the middle of everything that’s going on,” said Michael Reynolds, a California real estate planning and analysis expert who was part of an Urban Land Institute advisory panel that studied the plan. “This is a challenge that you have to take on.”

The question is: At what cost?

“It’s a dilemma,” said downtown building owner David Sweet, the chairman of Main Seneca Corp.

“It’s probably the worst one we’ve had in decades because the building is so large,” he said. “The shadow of that building over there is ominous.”

The Urban Land Institute experts said they feared that letting the building fall into bankruptcy or foreclosure would lead to its sale – at a likely bargain basement price. That, in itself, could be a good thing because it would ease the financial strain on the property by ridding it of the $75 million balloon payment that Seneca One is facing on its mortgage in January 2015.

But if that happens, the city would lose its greatest chance to work with the building’s owners on a redevelopment plan that fits in with the vision for the neighboring waterfront.

Maybe the new owner would be committed to a sweeping redevelopment, as Seneca One is. But maybe the tower would be snapped up by a landlord who couldn’t care less about Buffalo’s broader redevelopment and is interested only in filling the building with tenants as quickly as possible. That would be bad news for other downtown landlords, who would likely have to compete with cut-rate rents offered by the tower’s new owner.

“We’d like to see a situation where they can control the outcome, rather than just letting it go,” said Carl Montante Jr., Uniland Development Co.’s vice president of marketing.

But that control won’t be cheap for taxpayers, who will be asked for tens of millions of dollars in handouts.

Renovating the tower into Class A offices would cost an estimated $113 million more than the building’s owners could expect to take in at today’s going rent, which averages around $24 per share foot, according to the Urban Land Institute panel. And filling 800,000 square feet of office space will take a long time in a market that typically absorbs about 100,000 square feet of new space a year. At that pace, filling the HSBC tower will take almost eight years.

A hotel is even worse, with revenues running about $126 million below cost, mainly because the highest rate the market will bear for a hotel room is around $175 a night. And there already are plans for 400 to 500 additional hotel rooms downtown, including Buffalo Sabres owner Terry Pegula’s HarborCenter plan and developer Carl Paladino’s mixed-use proposal for the Erie Basin Marina.

That’s more new hotel rooms than the city has absorbed over the past 10 years, and the Urban Land Institute experts were rightly worried about putting even more into the mix.

Apartments aren’t much better, costing an estimated $92 million more than their forecasted revenues. That’s because the top apartment rent of around $1.30 per square foot locally isn’t high enough to cover construction costs. And even though the vacancy rate is only about 3 percent for downtown’s apartments, the region’s declining population keeps a lid on the demand for those units. A 2005 study estimated that downtown Buffalo can absorb between 100 to 200 new apartments each year.

Condos make more financial sense, actually generating about $40 million more than cost, but the market for luxury condominiums is too small to make that much more than a small part of a revitalization project. The market has been absorbing luxury condos at a rate of about one per month, so a big condominium conversion would require public financing to help the tower owner get through the shortfall in revenues while they wait for the units to sell.

There is ample precedent for providing the type of lucrative tax breaks the HSBC project would require. The planned $172 million HarborCenter last month picked up $37 million in tax breaks through the Erie County Industrial Development Agency. The conversion of the Dulski federal building into the Avant hotel and luxury condo complex got $40 million in state grants and tax breaks.

The cloud overhanging the tower is Seneca One’s mortgage on the property. The loan is coming due soon, with Seneca One is facing a $75 million balloon payment in January 2015. Typically, a building owner facing a massive balloon payment would refinance as its due date approached to avoid the big payment. But that’s virtually impossible to do with a building that’s nearly empty.

That forces Seneca One to try to work out a deal with its lenders, who will have some incentive to negotiate if they think they could take less of a financial hit by compromising than by taking what they can get in a foreclosure sale or a bankruptcy.

Stephen P. Fitzmaurice, Seneca One’s chief operating officer, thinks it will be easier to negotiate a restructuring of the balloon payment if it’s clear that the tower’s owners have a plan to redevelop the property that has the support of local leaders.

Buffalo Mayor Byron Brown said he’s willing to work with Seneca One, but at this early stage, he’s not making promises, either.

“This is going to be a process that requires some reciprocity on the ownership side,” Brown said. “If we all work together, the outcome can be a good one.”

The Urban Land Institute experts spoke of a public-private partnership that could allow taxpayers to share both the risks and potential rewards of the revitalization project, possibly including an ownership stake in the property or an arrangement that allows additional proceeds to flow to the government partners if rental income rises above a certain target.

Sweet thinks that’s a good idea. “The public ought to own a percentage of it, or something. I don’t understand why the public has to give away our money.”

But if there’s no deal on the balloon payment, then all bets are off with Seneca One, and the region will have to roll the dice with whoever buys the tower when it’s auctioned off.